More layoffs, likely sale for Lillian

Things have gone from bad to worse for Lillian Vernon. Two months after it cut 25% of its staff, the struggling gifts and housewares cataloger on Feb. 15 laid off about half of its full-time staff, or nearly 200 employees.

The situation is so dire that Lillian Vernon is actively seeking a new owner, says CEO Michael D. Muoio. The Virginia Beach, VA-based merchant has, in fact, hired New York-based investment bank Gruppo, Levey & Co. to explore strategic alternatives for Lillian Vernon. “We’re looking at all alternatives in terms of sale of the company,” Muoio says.

Citing devastating increases in postal and parcel rates, coupled with paper price hikes and a decrease in value of the U.S. dollar, Muoio says the company is left with no alternative than to find a new owner. And on that front, “We’re moving as fast as we possibly can,” he says. “Eighty people have been contacted as potential buyers.” Lillian Vernon has been privately held since Direct Holdings purchased it in 2003. It was sold again to Sun Capital Partners in 2006 and later that year moved operations from White Plains, NY, to Virginia Beach, VA.

Muoio says there is a possibility the company would move after a new owner is found. “We may stay here or we may relocate,” he says. But with its current 1 million-sq. ft.-facility, “We can’t handle the infrastructure here. It’s too big.”

In the past year, Muoio says the company reduced its EBITDA (earnings before interest, taxes, depreciation and amortization) loss from $22.1 million to $3.9 million, but the cost of rent, utilities, and maintenance accounted for $4.6 million.

“We actually made money on an EBITDA basis,” he says, “but we got whacked in the head with the postal, freight, and paper cost increases. And we started to shrink the business.”

As of June 30, 2007, the company had 564 employees; there were 374 employees as of Dec. 31, 2007; and it now has 177 employees. Worse yet, Muoio says more layoffs are possible: “That’s in the cards because we don’t know the future of the company.”

But he’s proud of the fact that he and his team managed to “get this thing to profitability inside of 12 months.” The cataloger was on a roll until the increases in postage, freight, and paper took a bite out of the bottom line, he says.

And Muoio remains confident about Lillian Vernon’s outlook: “It’s too good of a company to have it stop shipping. We haven’t finished our work here.”

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